48 – The Richest Man in Babylon

Share:

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on email

Episode Overview:

Ken shares with us the first ever personal finance book he ever read. At 12-years old, the book was “The Richest Man in Babylon” by George Clason. Told in the setting of ancient Babylon, this book is an easy read and great for the whole family. Arkad, the Richest Man, shares with us the secrets to gathering wealth, many of the things Ken talks about every week! If you’re tired of the technical nitty gritty, this episode is a great introductory, easy listen.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy day to you. This is Ken Kaufman and I am thrilled you’re here for episode number 48, “The Richest Man in Babylon.” Now, “The Richest Man in Babylon” is the first personal finance book that I read when I was young, probably right around 12 years old, and it’s had a lasting impression on me. It is written in the context of this old ancient land of Babylon that grew to be mighty and extremely prosperous. And within this framework, or within this context and setting, we learn about this richest man in Babylon, and he basically opens up and starts sharing some of the things he’s learned in his life that’s helped him to be successful with managing money and with ultimately obtaining financial independence. So, I want to do just a quick high level overview of some of the key principles and some of the key learnings from the book, and hopefully it will motivate you you to look at it. Also, if you have kids that you want to expose to personal finance, it’s a fun book. It’s something fun to discuss as a family. It’s got some fun ideas even in the book to share back and forth.

So, the story opens up with a man named Arkad, who is known as the richest man in Babylon. And he is approached by a few men of his same age who knew him all growing up. I would imagine they went to the same grade school, they went to the same high school, they were in the same types of classes and around each other. And these men approach this man Arkad, who’s the richest man in Babylon, and they say, like, “What happened? How did you become so much richer than us? We’re barely creating an existence for ourselves and our families, and yet you have become so wealthy and so dominant here in our very prosperous society and a leader in that society?” And they start to want to quickly point toward, you know, “You weren’t smarter than us, you weren’t a better athlete, you didn’t outachieve or outperform us in any way. So basically, how did you get so lucky in life?” This is the premise they come to him with.

And he pushes back on them. And he says, “Look, it’s either one of two things. Either you have failed to learn the laws that govern the building of wealth, or you’ve just chosen to not observe them. That’s all that separates me from you.” And of course, they’re not pleased to hear that answer and they want to understand, you know, what luck or fortune came his way that didn’t come to somebody else’s. And so he starts to open up to them and explain to them how he came to this place where he’s the richest man in Babylon. And he talks about how he had struggled in different professions and he had become a scribe, I think is what they called it at the time. And there was, let’s see, it says here. Yeah, so, there’s a man who comes in, his name is Algamish, the moneylender. He comes to the house of the city master, and he wants to order a law, the ninth law to be written down for him. And back then, you know, the stone tablet thing, so the scribes were just, you know, recreating things on these stone tablets. And Algamish says, “Look, I really need this done in the next two days. And if you can get this thing done in the next two days, then I’ll give you a couple of extra copper pieces for doing the extra work.” And Arkad is the scribe who’s assigned this job. And he says, “Great, I’ll do it.” And he works tirelessly for two days and he can’t actually deliver, he can’t get it done.

And when Algamish shows up, he’s very angry, and ultimately Arkad says, “Look, you’re, like, a very, very rich and wealthy man. If you would be willing to just tell me how did you become this way?” Because Arkad had been trying to study and learn how could he be successful with money and how could he make progress in this way. And he says, you know, “Algamish, if you’ll tell me, I’ll stay up all night, and I will get this ninth law all scribed out exactly the way you want it and it’ll be ready for you in the morning.” Algamish says, “That’s probably a good deal. Great. I’ll take you up on it. When I come back tomorrow, I’ll share what my secrets to wealth are.” And Arkad then works all night long. He gets it done, hands it over, and he’s thrilled to be able to say, “Look, here it is. And now, you know, tell me all of this brilliance about how to be successful with money in the same way that you have been.”

And Algamish starts to quickly explain that he found the road to wealth. I’m reading right from the book here. “‘I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you,’ pointing at Arkad.” And Arkad was really underwhelmed by this. He said, “Really, that’s it? What do you mean? Like there’s nothing new, novel about this.” And he even then goes on and pushes Algamish and says, “But all I earn is actually already mine to keep, isn’t it?” And that’s where then Algamish starts to teach Arkad some key principles. He says, “But you have all these expenses that you pay.” He refers to the sandal maker that he has to pay and the brick maker and all of the different folks and, you know, different things he has to pay for. For food and clothing and his housing situation and everything else. And he quickly explains that, “Look, Arkad, all you’re doing is paying all these other people but you’re never actually paying yourself, you’re never putting yourself first and your future self first.” And so at the end of day he says, “A part of all you earn is yours to keep. And it should not be less than a tenth but it can be more if you can afford it. Pay yourself first. Put yourself up there at the front of the stack.”

And Arkad thinks about this still, and he says, “Okay, I guess I can give this a try.” Algamish challenges him. And so Arkad goes ahead and he puts the effort in here and he starts to put one tenth of all that he earns aside and doesn’t touch it. And he notices a couple things right off. Number one, he doesn’t miss the 10%. He’s able to live fine on the other 90% of his income that comes in. The second thing is is that 10% that he’s saving out of each paycheck that he gets, if you will, it starts to get bigger and bigger, and he starts to get very tempted to blow it on something that wouldn’t be of worth, nothing like an investment. It would be, you know, on fancy food or fancy clothing or fancy decorations for a house. Not that those are horrible things, but they’re not necessarily investments either.

And so after 12 months, Algamish comes back and says, “Hey, so now tell me how you’ve done.” And Arkad says, “I’ve saved a 10th of all I’ve earned. It’s done great.” And he says, “Great. So what have you done with it?” And Arkad then says, “Oh, listen, here’s what I did. The brick maker in town, he actually is going over to this faraway land. And he’s going to be buying jewels from the Phoenicians and when he comes back, he’s getting the jewels for cheap, but when he gets back, we’re going to sell them for a lot of money, and then I’ll be able to even grow my savings even more.” And this is where Algamish says, “Oh, you’re a fool. Good job saving the money, but you don’t ask the brick maker to be an expert on jewels. You wouldn’t ask the jewel maker to be an expert on brick making. It’s clear you’re just going to lose your money here.” And so Arkad ends up taking a loss.

But again, Algamish challenges him and says, “Look, I really just need you to focus on keep saving money, and now, put it to work for yourself so that it can grow.” And he refers to it growing as it starts to have children and then the children have children. This is referencing the earnings and the compound interest effect of saving money. And so, Arkad commits himself to this and he says, “Okay, I’ll keep doing it.” Algamish does come back and visit again in the future. I think it was one year or two years later, and he says, “How are you doing now?” He says, “Oh, I’m doing great. Okay, so I’ve been saving the money. And now I’ve also given my money to the… ” Let’s see, I think he’s a welder. No, he makes armor. And he says, “I’m helping him buy the bronze materials that he needs to be able to make the armor and the weaponry. And he’s paying me interest on it every four months, and I have all that money coming in.”

And Algamish says, “Oh, that’s great. Okay, this is making great progress. Now with all those earnings coming in that you have, are you keeping that all in your savings and then reinvesting it and keeping it growing?” And he said, “Well, no. Actually, I’ve been taking that money, those earnings, and I’ve been having fine wine and dinners and things with my family.” And he’s basically been just spending it lavishly. And again, Algamish kind of shakes his head and says, “Look, it can’t be this way. Your earnings need to have their children and then their children, and they all grow and this whole compounding interest effect needs to happen.” And this is where Arkad, it finally locks in for him and he says, “Oh, I get it.” And then two years later Algamish comes back. And of course he’s doing much better in all these areas.

And Algamish specifically says to Arkad, he says “You’ve taught yourself how to acquire money, how to keep it, and now how to use it.” And this is where Algamish actually says to Arkad, “Look, I want to make you a partner in my business. You’ve clearly learned these lessons of how to handle money, you’ve made some valuable mistakes that you’ve learned from, and you’re ready to come and be a partner. I’m going to be dying soon. None of my kids know anything. They just want to spend money. They don’t have any discipline and ability to learn this whole concept of how to get it, how to keep it and then how to keep using it so it keeps working for you.” And so this is where Arkad then gets this opportunity. He becomes a partner in the estate of this man who then eventually dies, he inherits his portion of this estate, and continues these principles of a part of all he earns he keeps. He keeps that money working for him and growing and reinvesting, and ultimately becomes the richest man in Babylon.

So jumping to the kind of conclusion of the story, his friends, who are sitting there with Arkad, they’re just amazed. They’re like, “Wow, you got so lucky that you met this guy,” and so on and so forth. And he says, “What do you mean luck? I saved all that money and I lost it that first year. And then I saved more money, but then I didn’t keep saving it so that it would grow. And so I got in trouble again. And I went through this whole process, and I had to do a lot of hard work and a lot of things to get to where I was.” And he then goes on with his friends and he says, “And by the way, besides this whole concept of earning, keeping what you earn, at least, you know, 10% of it, and saving it is the other things is learning to make the treasure work for you is so critical, and then ensuring an income for the future is so critical.” That’s this whole concept of building net worth. And then that net worth being able to generate an income that you would need for the rest of your life or you would be using and living off of.

He also highly encouraged them in the principles around providing, this is the phrase that he uses, “Provide also that thy family may not want should the gods call thee to their realms.” So this would be a concept of life insurance. If something happened to you, and your family were to lose you, you can’t replace yourself emotionally with your family, but how can you replace yourself financially? And so the concepts of life insurance or things that can step in and replace income and financial support that you had been providing them, and not just on a current basis, but for future things like college or other things that were important to you and important to them. He also really encourages his friends. He says, “You need to counsel with wise men and seek the advice of men whose daily work is handling money, and investing in these things. They need to know about it, they need to have experience with it.” And then he also encouraged his friends that the last thing is, “You need to enjoy life. You can’t just be a miser and never spend any of this money. Life is to be enjoyed. And there’s a balance to all of that.”

And so, at the end of the day, some of these friends that were listening to Arkad’s story of this relationship he had with Algamish and this growth, some of them just, they couldn’t buy into it. And they said, “No, it’s just you got lucky.” Others just felt like, “You know what, that’s too hard. Let’ just keep living, kind of, ‘paycheck to paycheck’ and let’s not worry about it.” But there were a few who really listened to what Arkad had to say. And these ones kept coming back to him on a regular basis for more advice. They took his advice of find people who are good with money and keep engaging, and Arkad was more than happy to engage and share his thoughts and concepts and principles with them. And as they were willing to learn them and digest them and make some mistakes, but then get some coaching and feedback as to how to get back on track. And very quickly, these friends of his who really made an effort and tried and pushed forward, they were the ones who ultimately figured it out. And it says here at the end of this first section of “The Richest Man in Babylon,” “The turning point in these men’s lives came upon that day when they realized the truth that had come from Algamish to Arkad and then from Arkad to them. And the underlying truth is a part of all you earn is yours to keep.”

So, there’s a quick little snippet and overview of “The Richest Man in Babylon”. There’s a lot of other rules and the laws of gold and some other different things to learn. I’d recommend that you pick up a copy up. I’ll make sure there’s a link in the show notes to it as well. But it’s a great book. It’s a fun story. And it teaches some really, really important principles. And at the end of the day, the very core of succeeding in personal finance is learning to live within or underneath your means and empowering yourself to set money aside and keep it set aside. Keep it growing and earning, and ultimately that builds up your net worth, it builds up your nest egg so that you can get more confident, invest more confidently, and continue to grow into your future. And that’s the whole underlying principle of “The Richest Man in Babylon,” and these same principles are effective today.

I want to thank you for listening. I’ve got some fun episodes coming up here in the future, so I look forward to doing those with you. Many, many thanks to you for joining today. This is a wrap for Episode 48. Happy day.

Leave a Reply:

About the Podcast

Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.

Listen

Join Our Group

Like & Follow

Recent Episodes

Sign up for our Newsletter

Get news, updates, and exclusive tips on reaching financial success.